How Is the US-Iran War Affecting Other Countries

The ongoing war between the US and Iran is no longer just a conflict between two nations, its shockwaves have reached economies across the globe. From the closure of a critical shipping route to record spikes in oil prices, this war is leaving its mark on nearly every continent. In this blog, we take a detailed look at which countries are being hit hardest, and why.

The Current State of the War

As of July 2026, the situation has escalated sharply. The US has carried out strikes on Iran for a third consecutive night, and President Trump has signaled that more military action is coming. The ceasefire that had briefly held has now collapsed. Iran retaliated by striking two tankers in the Strait of Hormuz, killing one crew member from a UAE-flagged vessel. In response, the US resumed its naval blockade of Iranian ports.

Why Does the Strait of Hormuz Matter So Much?

Because of the war, Gulf producers such as Iraq, Kuwait, and Qatar are unable to get their oil and gas to market even though they need the revenue most. This has created what analysts call the “Hormuz Paradox”: prices are rising, but producers aren’t profiting, because their exports are stranded at the source.

The Impact on Pakistan

Pakistan is among the countries hit hardest by this war, for several key reasons:

• Pakistan imports roughly 80% of its energy from the Gulf region
• The country is already navigating a fragile economy and ongoing IMF engagement, leaving little room to absorb further shocks
• Diesel is the backbone of Pakistan’s freight and agriculture sectors rising transport costs feed directly into the price of wheat and fertiliser
• Remittances from Gulf countries, a major economic lifeline for Pakistan, are also at risk as regional economies come under strain

Analysts warn that as Pakistan’s wheat harvest season begins, food prices could climb even further, since tractors, threshers, and the trucks that move grain all run on high-speed diesel.

Gulf States: Profit or Loss?

Gulf Cooperation Council (GCC) countries including Qatar, Kuwait, and Bahrain are experiencing a uniquely painful version of this crisis. Normally, rising oil prices benefit producers. This time, it’s the opposite. Their export routes are effectively blocked, so even as prices climb, they can’t get their product to market. Only Saudi Arabia and the UAE have partial pipeline alternatives that offer some relief.

On top of this, Gulf desalination plants the primary source of drinking water in the region have come under attack, raising fears that the crisis could shift from an economic one into a humanitarian one.

Impact on Major Asian Economies

China, India, Japan, and South Korea are among the world’s largest importers of Gulf oil and LNG. Among them:

• China, Iran’s third-largest crude supplier, is facing rising energy costs despite officially declaring itself neutral in the conflict
• India’s agricultural exports including rice and bananas are facing disruption as shipments to Gulf countries stall
• Japan and South Korea rely heavily on Gulf energy for their industries, putting them at higher risk of inflation
  

Bangladesh and Sri Lanka: Among the Worst Affected

Smaller, financially fragile economies like Bangladesh and Sri Lanka have been hit especially hard. Bangladesh imports about 95% of its oil and has had to introduce fuel rationing. Sri Lanka, still recovering from its 2019 economic crisis, has declared every Wednesday a public holiday to conserve dwindling fuel stockpiles.

The Bigger Picture: Global Economic Impact

According to international financial institutions like the IMF, if the war ends soon, global GDP losses could total around $590 billion. But if the conflict drags on, that figure could climb to as much as $3.5 trillion roughly 3% of global GDP, a bigger hit than the first year of the Russia-Ukraine war.

Alongside this, the risk of inflation and stagflation is rising worldwide, particularly in countries that already have weak economic buffers.